The media sector remains highly correlated to underlying economic conditions. The slowdown in the US economy over the last eight or nine months has produced cold winds throughout the global media sector.
Advertising remains one of the main sources of revenue for media companies. When corporate profits begin to fall, the advertising budget is one of the first items to be cut. In the last quarter of 2000, many large US companies experienced falling profits and this resulted in significantly reduced advertising budgets for 2001.
Over the last year, the deteriorating operating environment has resulted in the media sector significantly underperforming in global markets. The European Media Index is down 27 per cent over the last year compared to a 28 per cent increase in the ISEQ, a 4 per cent rise in the Dow Jones and a 9 per cent fall in the EuroStoxx index.
While the media sector is one of the first to experience an economic downturn, it is also at the fore of any economic recovery. The European media sector hit a low in April, but since then has recovered by around 10 per cent as earnings prospects for next year continue to improve.
At this juncture, it would appear that all the prospective "bad" news is already reflected in share prices, and the sector is well positioned for recovery. The issue for investors is getting the timing right. It is likely to take until the last quarter of 2001 before the media sector gains some confidence in its medium-term earnings visibility - too late for Sharetrack contestants.
There are two media stocks quoted on the Dublin exchange - Independent News & Mediaand Ulster Television. Independent has built up a significant international media portfolio that operates primarily in Ireland, Australia, New Zealand, South Africa and Britain. Over the last 10 years, it has produced average earnings growth of over 16 per cent. While growth in the current year is likely to be more moderate, Independent is well positioned when conditions in the global media sector improve.
Ulster Television has undergone a transformation in the last 18 months. Traditionally focused on the ITV television franchise for Northern Ireland, a new management team has positioned the group as an Irish multimedia company.
While Ulster Television's advertising revenues are expected to decline by 6 per cent in the first half of 2001, the group is continuing to significantly outperform the ITV network.
James Forbes is an equity analyst with Goodbody Stockbrokers.
Worldcom announced a capital reorganisation this week. This involved splitting the company into two tracking stocks. For Sharetrack 100, the holdings in the MCI tracker stock have been valued at €18.46 as at 5:30 p.m. yesterday and added to the cash account
